What is Tail Coverage?
The purpose of tail coverage is to cover a healthcare provider against claims that may be filed after the termination of their medical liability policy. Tail coverage is also known as an “extended reporting endorsement,” because extends the length of time a healthcare provider has to report a claim to their insurance company and still see it covered. When a claims-made policy expires, the insured provider becomes vulnerable to any claim filed after its expiration. Tail coverage may be used when a healthcare provider is retiring or changing employers, in which case they may have to change insurance. While they are in between insurance carriers, they are vulnerable to claims and tail coverage fills in this gap. It is purchased from the original insurer.
Although the price of a tail premium varies between carriers, it is substantially more expensive than a normal claims-made premium - as much as 200% to 350% more. When a policy is about to expire, healthcare providers have the option to purchase tail coverage or extend the lifespan of their current policy. Because there is usually considerable lag time between an incident of malpractice and a patient choosing to file suit, the filing of a claim does not always occur during the physician's liability coverage period - or may be filed just before the period expires. If this is the case, the physician may purchase tail coverage as opposed to extending the original policy well past the time that it would be needed.
History of Tail Coverage
Arguably, tail coverage was the result of an increasingly complex malpractice insurance market. It could not have existed in an insurance market dominated by occurrence policies. Tail coverage only came to be as claims-made policies gained traction on the marketplace. After the dissolution of the straightforward occurrence policy, a need for tail coverage arose. Occurrence policies covered the insured regardless of when the patient's claim was filed (even if it was filed decades after the policy expired), as long as the incident of malpractice itself took place during the policy period. In the context of an occurrence policy, it does not matter when the claim is filed.
If a physician is insured with an occurrence policy between 1960 and 1970, and a claim is filed in 1977 for an event that took place in 1965, the insurance company would be obligated to cover the defense costs and damages awarded in that claim. Despite the 7 year lag between the conclusion of the policy and when the claim was filed, the insured remains covered indefinitely for any event that occurred between 1960 and 1970.
Occurrence policies have been all but done away with in the modern day. They were seen as unfavorable for the amount of risk they posed to an insurance company writing such policies.
Claims-made policies would replace them. Cutting risk and limiting liability for the carrier at all corners, a claims-made policy is cheaper but offers many more points of vulnerability for the insured healthcare provider. There is plenty of room for the insurance carrier to deny coverage in a claims-made policy, and the savvy healthcare provider must acquaint him or herself with all of them in order to achieve the fullest coverage.
If the physician in the example above had been covered by a claims-made policy, the insurance company would be under no obligation to cover them for that claim - filed so long after the termination of the policy. In order to protect themselves against claims filed after the termination of a policy, healthcare providers were now offered the option of tail coverage - which effectively extended the length of coverage, at an increased price.
Tail coverage is subject to certain critical limitations. The policy period for tail coverage is generally 1 year. The insured should be aware that they are not insured for any wrongful/malpractice acts that occur during that 1 year of tail coverage. They are insured against claims brought against them for malpractice acts that took place during their original policy.
4 ways a Healthcare Provider Can Obtain Tail Coverage:
- The healthcare provider may purchase tail coverage from the same insurance carrier who wrote their recently expired/terminated claims-made policy. The cost of tail coverage would be substantial but would depend on the number of years that the policy was held. The longer the policy was in the effect, the greater the likelihood that the cost of tail coverage would be lower, although not by much.
- Standalone tail coverage may be purchased from a different insurance carrier at the termination of a claims-made policy with the original carrier. This could be a less expensive option than purchasing it from the original carrier. The new carrier would provide coverage for any claims brought against the healthcare provider, for events that took place while they were insured under the other company's claims-made policy.
- If the healthcare provider is simply switching insurance carriers, the need to purchase tail coverage is eliminated if the new carrier offers “prior acts”/“nose” coverage. When a new claims-made policy goes into effect with a new insurance carrier, nose coverage will ‘pick up' the provider's prior acts, and will cover any claims brought against the provider for those acts. Nose coverage may not always be available, depending on the carrier and the situation.
- In some cases, a healthcare provider may receive free tail coverage in the event of disability, retirement or death. This benefit is offered by most insurance carriers, with varying specifications as to the age of retirement and the type of disability covered. There may be an additional requirement that the insured have kept continuous insurance with the company for a set number of years.
Who Pays For Tail Coverage:
In some cases, malpractice insurance including tail coverage may be offered as a benefit by an employer. If a practice is having difficulty recruiting physicians, they may use this benefit in an attempt to lure more candidates. This is certainly not always the case and a healthcare provider may be paying for their claims-made policy and eventual tail coverage on their own. It is also possible to split the cost of tail coverage between the employer and the insured. An agreement may be devised dictating who would pay under certain circumstances, such as the employer laying off or firing the provider, or the provider quitting with or without valid cause.
A quote for tail coverage is usually offered by the insurance at the termination of a claims-made policy and must be accepted, paid for or declined with a specific period of time, sometimes between 20 and 30 days.